From Detroit to Marquette, municipalities by the dozen want
more control over Internet access. Undaunted by the frequent costly failures of
such ventures elsewhere, many local officials insist they can solve an array of
economic and social ills by managing citizens’ connections to the World Wide
Web. But there’s clear evidence that private services are far superior to a
government-run network.

More often than not, municipal broadband ventures have saddled taxpayers with unwelcome debt or otherwise failed to deliver promised results.

The timing of this trend could not be more incongruous. The
Michigan Legislature recently rewrote state law to promoteprivate
investment in telecommunications. But efforts to prohibit municipalities from
muscling in on the market were largely defeated by the likes of the Michigan
Municipal League and other advocates of government-run Internet access. In the
absence of government interference, however, the number of high speed lines
statewide has increased by 1,251 percent in the past five years, to more than
1.1 million. At least 32 firms in Michigan already offer Internet access of
every sort, including coaxial cable, DSL and wireless.

Nonetheless, even cash-poor communities are lining up to
finance and operate broadband networks or to franchise a favored firm that’s
willing to discount rates in return for a captive customer base. In addition to
Detroit and Marquette, government broadband initiatives are underway in the
counties of Oakland, Macomb, Washtenaw, Kent, Genesee and Ottawa, as well as in
the cities of Battle Creek, Grand Rapids and Muskegon, to name but a few.

Proponents
contend that municipal broadband will stimulate economic growth, alleviate
illiteracy and even conquer blight. "The benefits are nearly endless," according
to Oakland County Executive L. Brooks Patterson, whose Wireless Oakland proposal
ranks as Michigan’s most ambitious to date.

Assuming even the best of intentions, there’s solid evidence
that local governments are ill-equipped for the rough and tumble of the
high-tech market. More often than not, municipal broadband ventures have saddled
taxpayers with unwelcome debt or otherwise failed to deliver promised results.

There’s hardly a shortage of Internet access in Michigan. Even
those preferring to Google in public can easily find wireless "hotspots" in
airports and hotels, as well as Starbucks, Borders and Kinkos. Meanwhile, a
joint venture between McDonalds and Intel will soon make wireless access as
ubiquitous as Big Macs, while Verizon, among others, is preparing to expand
wireless services across entire communities in 2006. Free broadband also is
widely available in public libraries and schools, as well as community centers,
compliments of federally mandated taxpayer subsidies.

The adverse consequences of government-managed access are
abundantly clear, as evidenced by a closer examination of the Wireless Oakland
project.

County officials are promising "free" wireless Internet
access, both open-air and in-building. Plans also call for "no cost" or "low
cost" computers and training for low-income residents. Mr. Patterson and his
team claim that the project will attract new business, boost tourism, improve
education, enhance public safety and eliminate the so-called "digital divide" in
one of the nation’s wealthiest counties — all without taxpayer financing.

The Pontiac-based firm of MichTel Communications, LLC will
own, operate and maintain the wireless network, but will be required to answer
to an advisory board appointed by the county. In theory, the plan is viable
because the county has pledged to provide unfettered access to hundreds of
public facilities for MichTel’s rooftop antennae and receivers. The access
inventory includes 35 buildings, 350 public schools, 1,400 traffic signals, 200
tornado siren poles and other structures that county officials say is worth
"hundreds of millions of dollars."

Competing firms — all those that have not won county favor —
can only dream of such access. For example, telecom firms paid Oakland County
communities more than $2.1 million for rights-of-way in 2003-2004, according to
state figures; payments statewide totaled nearly $16 million. MichTel thus will
enjoy a tremendous competitive advantage in the state’s most lucrative market,
assuming it actually secures the estimated $113.5 million in financing needed in
the next five years to build and operate the network.

The provision of free access by MichTel will also erode
rivals’ market share, thereby reducing customer choice and technology
investment. Meanwhile, tech experts are warning that new technologies could
render the proposed service obsolete before project costs can be recouped.

Alternatives do exist for local officials dissatisfied with
the course of the market: To the extent that municipalities reduce tax and
regulatory barriers, broadband penetration and consumer choices will increase.
Simply put, Michigan needs less government involvement in broadband, not more.

#####

Diane S. Katz is
director of science, environment and technology policy with the Mackinac Center
for Public Policy, a research and educational institute headquartered in
Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.

ISSN: 1093-2240,
SKU: V2006-05

Summary

Many municipalities around Michigan are financing or managing broadband networks in competition with private firms. These initiatives should be privatized, and all telecommunications left to the private sector, which is far better equipped to provide broadband services.